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What is the difference in AOP and BOI

Abhinav Garg (33 Points)

02 October 2009

Hi I have the following queries related to AOP and BOI:

Q 1 Is there a definition of Body of Individuals in the Income tax Act?

Q2 what is the difference between an Association of Persons and Body of Individuals?

Q3 Can a company /firm/ foreign company form an AOP?

An early response would be of immense help

Thanks

Abhinav

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14 Replies

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 02 October 2009

An AOP means a group of persons (whether individuals, HUF, companies, firms, etc.) who join together for common purpose(s). Every combination of person cannot be termed as AOP. It is only when they associate themselves in an income-producing activity then they become AOP.

Whereas, BOI means a group of individuals (individual only) who join together for common purpose(s) whether or not to earn income.

Co-heirs, co-donees, etc joining together for a common purpose or action would be chargeable as an AOP or BOI. In case of income of AOP, the AOP alone shall be taxed and the members of the AOP cannot be taxed individually in respect of the income of the AOP In case of income of AOP, the AOP alone shall be taxed and the members of the AOP cannot be taxed individually in respect of the income of the AOP

Difference between AOP and BOI

In case of BOI, only individuals can be the members, whereas in case of AOP, any person can be its member i.e. entities like Company, Firm etc. can be the member of AOP but not of BOI.

In case of an AOP, members voluntarily get together with a common will for a common intention or purpose, whereas in case of BOI, such common will may or may not be present.

6 Like

NishantSharma (Student) (24 Points)
Replied 11 June 2012

thanks for helping me out..

B.S.Rosy (Student CA Final ) (29 Points)
Replied 25 October 2013

Thank u for helping me out I got a clear picture about it.. THANK YOU

Mahesh (Student) (22 Points)
Replied 19 July 2014

Thank u Manmohan sir... Now I'm clarified btwn such two terms.. (AOP/BOI)

Mahesh (Student) (22 Points)
Replied 19 July 2014

Thank u Manmohan sir... Now I'm clarified btwn such two terms.. (AOP/BOI)

Aditya Pillutla (Student CMA) (26 Points)
Replied 03 January 2015

Difference between PFAOP and PFBOI

Section 2(37) of the Income Tax Act, 1961 defines a person. However, such definition is not exhaustive as it merely states an individual, HUF, Company, AOP, BOI, AJP and others. The concept of others has been left to changing circumstances. However, with the recent developments in legal framework with the Partnership Act, 1932 and revised Companies Act, 2013, there has been a rising need for clarity in assessment for taxation purposes and as such, Income Tax Act,1961 makes a distinction that Indian Partnership Act, 1932 does not i.e. such firms are divided into types for taxation purposes
1.) Partnership Firm As Such: These are essentially those firms recognised under the Partnership Act, 1932
2.) Partnership Firm Assessed as Association of Persons or Body of Individuals: This distinction has been made solely in the Income tax Act 1961

                As there are two Acts guiding PFAS, its assessment bears no problems whatsoever. The main distinction arises when we have to assess a partnership firm either as AOP or BOI. Herein, let’s examine some chief distinction between AOP and BOI
1.) An association of persons is defined within the act as a group of persons who have come together for the purpose of earning profits or gains through a common objective while body of individuals is defined as a conglomerate of individuals who have come together for a common objective example: co heirs of shares
                Herein, the use of the person assumes significance because person in Income Tax Act, 1961 (hereafter referred to as ITA unless otherwise mentioned) because the term person has been defined as afore discussed. Thus, from this, we can understand the first basis of distinction as to its members- AOP may contain any person as defined within ITA while BOI shall contain only individuals
                Also, the use of the term conglomerate assumes significance too because conglomerate has been defined in the Oxford Dictionary as a thing with different parts grouped together. Now a common question that arises as such is how, if at all, any difference may exist between AOP and BOI if both include grouping together different elements. A careful scrutiny of the definition herein reveals that the prime purpose for formation of an AOP is to earn profits or gains while no such mention has been made in a BOI. It means that the chief purpose of formation of a BOI is only to accrue any incidental gains that may arise from some other object or perusal for example, co heirs of shares earning interest not in individual capacity because the shares are in joint names. Co donees earning incidental revenue on account of the joint contribution
But the moment a BOI begins to trade or transact in the perusal of such incidental revenue, it ceases to be a BOI and continues operation as an AOP as it started earning profits or gains as the case maybe. For example, co heirs of shares reinvesting the dividend in some firm or for interest in an organisation

2.) For taxation purposes, PFAOP is charged at the slab rates applicable to an individual not being a senior or super senior resident citizen or at the Maximum Marginal Rate or Higher rate basing on the situation plus surcharge and cess as applicable. Slab rates are applicable when the AOP has no member income more than the basic exemption limit applicable as stated above. Where a Foreign Company is a member and its share is not known, then Higher Rate is used and if it is MMR is used. But for BOI, obviously the possibility of existence of such scenario is ruled out because no one other than individuals can become a member. So for BOI either slab rates as applicable above or Rate as prescribed is used.

3.) A BOI can become an AOP but the contrary is not possible. This is because all a BOI has to do to convert into an AOP is to start an activity for the purpose of profit or gains. Thus, in the above example, where co-heirs reinvest their dividend, they start trading not as a BOI but as an AOP and as such can admit persons not limited to individuals. But in case of an AOP, to become a BOI, it has to stop its trading, establish a pre-agreed source of income and start accruing such income with no reinvestment whatsoever. For example, an AOP deciding to stop trading and invests the gains accrued in equity shares of a company and then receiving dividend is a BOI. But one important fact to be observed here is that the moment an AOP stops its transactions it is no longer conceived as an AOP because the business is discontinued and as such the AOP is dispersed and the existence of such AOP ceases. Therefore, the only way for an AOP to be a BOI is to stop its activities; but the moment it does so, there is no AOP carrying on the business. So any body freshly forming will not be a converted AOP but a fresh business body with a hitherto-undisclosed source. Thus an AOP can never become a BOI.

Now that we have seen the obvious differences between an AOP and a BOI, the obvious question that arises is that how a trust is different from either of the two. In reality, it is not. A trust merely carries on business not for itself but for its beneficiaries whereas an AOP or a BOI carry on business for themselves. While a trust acts in agent capacity, BOI and AOP act in self capacity. AOP and BOI’s capital is mostly their own or loaned from financial institutions whereas the capital of a trust is, in most cases, never their own, given to them by benefactors with interest vested in the beneficiaries. For example, a father establishing a trust for his minor son. The capital of the trust is the income given by the father who has an interest vested in the son.

1 Like

Manoj Kumar (Asstt. Manager) (26 Points)
Replied 21 August 2016

Our Club registered under Societies Act 1860 and having Pan Number as AOP , now I want to know tax liablity under income tax.

As per Income & Expenditure Account - Total amount has come out Excess of Expenditure over Income including Interest income.

Now I want to know how much tax lability on total Loss or Total Interest Income.

pratik upadhyay (AUDIT COMPLIANCE OFFICER) (469 Points)
Replied 02 December 2017

Thanks ManMahon sir

Preetam Singh Shekhawat (student) (171 Points)
Replied 15 December 2017

Dear Sir,

An entity is created in a village for water and sanitation programme. Now they want to take PAN card for the same. In which status they should apply for it. Grant will be received by this entity and will spend accordingly. No business income will be there.

Please Advise

CS Alpesh Dhandhlya (Company Secretary) (316 Points)
Replied 04 March 2018

I think you can apply for PAN as BOI

CS Alpesh Dhandhlya (Company Secretary) (316 Points)
Replied 04 March 2018

Dear Experts,

Can I register NGO as BOI or AOP in India ?

Kartikey Jain (Intern) (2377 Points)
Replied 04 July 2018

The basic distinction between AOP & BOI is:

1) AOP can comprises of any type of entity such as company, firm, individuals etc. however, as the name suggests, BOI shall comprise of only individuals

2) AOP shall be made only for an income generating activity while there is no such condition stated for BOI.

So, in my opinion, a trust or society shall be better suited for an NGO than a AOP

manojkumarkk (Accountant) (22 Points)
Replied 03 May 2019

how to register A O P

HOW TO REGISTER BOI

Paras Gala (2 Points)
Replied 20 February 2020

I have a temple which is being managed by a few people. They receive funds for management of the temple which they want to put in a bank account. For this they need a PAN. In what capacity should they apply for PAN. Can they apply under AOP or BOI? Or they can only apply under trust? Please advise.